Allocating to China – investor views

Chinese stocks are enjoying a strong rally in 2025. In the first half of the year, the Hang Seng Index surged more than 20%, making it the world’s best performing major market¹, and in mainland China, the Shanghai Composite is trading at levels not seen since 2015.

The robust upward momentum reflects a sharp change in sentiment, as China was overlooked by many international investors in recent years.

She was speaking at the HSBC 12th Annual China Conference, as part of a panel of investors who discussed China investment opportunities, with a focus on alternative assets.

During a period of global uncertainty, Chinese alternatives offer a chance for geographical diversification – especially for portfolios that have a heavy concentration towards the US. One of the advantages of this kind of allocation is that Chinese assets typically have a low correlation to assets in the rest of the world.

First it was interest in regional funds, he said, because they would allocate to China when the opportunity arose. But more recently, increased flows are going into long-short funds to capture some of the local market upside and diversify away from the US.

Diversification is just one part of how wealthy individuals are improving their risk management, as they are also becoming more sophisticated in their use of tools such as derivatives.

Another important category of alternative investments in China is private equity. As has been the case in other markets, Chinese private equity has had a challenging patch. But there are signs of a more positive outlook ahead.

One of the biggest challenges for private equity funds is subdued capital market activity, as the shortage of IPOs makes it difficult for funds to exit deals and return money to investors. Equity capital markets in Hong Kong, however, have been extremely active in 2025, with fundraising activity at USD45.5 billion in the first half of the year, up 152% on the same period in 2024².

As a result, private equity and venture capital firms logged 70 exits from mainland China-based companies in first half 2025. If that number is repeated in the second half, exits will reach their highest level in six years³.

One area that has reignited interest in China is the technology sector, as the country makes significant advances in AI, biotech, robotics, and other industries that look set to transform the future of business over the coming years.

AI is the standout technology of the times, and China’s release of large language model (LLM) DeepSeek earlier this year cemented its position as a world leader in the field. But there is more to the AI boom than the foundational model layer, and China is also strong in the real-life application of AI, said Tony Song, Founder and Chief Investment Officer, Alpine Investment Management.

With AI technology there will be many opportunities to integrate the software with physical mediums across things like robotics, wearables and EVs. There are also heavy domestic investments in aspects such as semiconductor manufacturing and energy production.

The liquidity picture is an important indicator of future returns, and the Chinese stock market currently has abundant liquidity, driven mostly by domestic investors. Several data points help illustrate this point.

Perhaps the most important is the so-called “deposit migration”, with household deposits increasing by just Rmb400 billion in the April to August 2025 period, compared to a RMB4.4 trillion increase in non-bank deposits, mostly with brokers, over the same period⁴.

Furthermore, newly opened A-share accounts on a 12-month moving average are approaching 2.5 million and margin financing is up around 15% since May 2024. Both suggest greater participation from retail investors⁵.

This is important because Chinese households have held money in deposits ever since the pandemic, due the uncertain economic outlook and weakness in the property market. Indications that money held in deposits is being directed towards the stock market mark a promising sign going forward.